Lecture international marketing (16th edition) chapter 15: international marketing channels

International Marketing
Channels
Chapter 15

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.


Learning Objectives
LO1 The variety of distribution channels and how they affect cost
and efficiency in marketing
LO2 The Japanese distribution structure and what it means to
Japanese customers and to competing importers of goods
LO3 How distribution patterns affect the various aspects
of international marketing
LO4 The functions, advantages, and disadvantages of various kinds
of middlemen
LO5 The importance of selecting and maintaining middlemen
LO6 The growing importance of e-commerce as a distribution
alternative
LO7 The interdependence of physical distribution activities
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Channel-of-Distribution
Structures
• The distribution process
– physical handling and distribution of goods,
– the passage of ownership (title), and
– the buying and selling negotiations between producers

and middlemen and between middlemen and customers

• Channel structures range from those with little
developed marketing infrastructure such as those
found in many emerging markets to the highly
complex, multi-layered system found in Japan
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International Distribution
Systems
• Import-Oriented Distribution Structure
• Tight distribution structures: Japan
• Trends: From Traditional to Modern Channel
Structures

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Import-Oriented Distribution
Structures
 In an import-oriented or traditional distribution
structure, an importer controls a fixed supply of
goods
 The marketing system develops around the
philosophy of selling a limited supply of goods at
high prices to a small number of affluent customers
 In the resulting seller’s market, market penetration
and mass distribution are not necessary because
demand exceeds supply, and in most cases

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Import-Oriented Distribution
Structures
 The customer seeks the supply from a limited
number of middlemen and this affects the
development of intermediaries and their functions.
 Distribution systems are local rather than national in
scope
 The relationship between the importer and any
middleman in the marketplace is considerably
different from a mass-marketing system, the
importer performs all the functions

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Japanese Distribution Structure
 Distribution in Japan has long been considered the most
effective non-tariff barrier to the Japanese market The
Japanese distribution structure is different enough from its
U.S. or European counterparts
 It has four distinguishing features:
1.
2.
3.
4.

A structure dominated by many small middlemen dealing with
many small retailers—high density of middlemen
Channel control by manufacturers
A business philosophy shaped by a unique culture and
Laws that protect the foundation of the system—the small retailer

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15-8


Japanese Distribution Structure

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Channel Control in Japanese
Distribution Systems

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Trends: From Traditional to
Modern Channel Structures
 Traditional channel structures still appear in many places
 But such channel structures also are giving way to new
forms, new alliances, and new processes
 Direct marketing, door-to-door selling, hypermarkets,
discount houses, shopping malls, catalog selling, the

Internet, and other distribution methods are being
introduced in an attempt to provide efficient distribution
channels
 Importers and retailers also are becoming more involved
in new product development

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Distribution Patterns
 The “traditional” system will not change overnight
 Nearly all international firms are forced by the
structure of the market to use at least some
middlemen in the distribution arrangement
 Because the structural arrangements of foreign and
domestic distribution seem alike, does not mean that
foreign channels are similar to domestic channels
 The differences in retail patterns is an example of the
variety of distribution patterns that exist at all levels

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Retail Patterns
 Retailing shows even greater diversity in its structure
than does wholesaling
 Size Patterns
• Large dominant retailers can be sold to directly, but there
is no adequate way to reach small retailers who, in the
aggregate, handle a great volume of sales

• Underdeveloped countries present similar problems
• The rate of change appears to be directly related to the
stage and speed of economic development

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Retail Patterns
 Direct Selling
• Sometimes called direct marketing, selling directly to the
consumer through mail, by telephone, or door-to-door is
often the approach in markets with insufficient or
underdeveloped distribution systems
• The approach works well in the most affluent markets too

 Resistance to Change
• Efforts to improve the efficiency of the distribution system,
new types of middlemen, and other attempts to change
traditional ways are typically viewed as threatening and
are thus resisted
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Alternative Middlemen Choices
 A marketer’s options range from assuming the entire
distribution activity (by establishing its own subsidiaries
and marketing directly to the end user) to depending on

intermediaries for distribution of the product
 Channel selection must be given considerable thought,
because once initiated, is difficult to change, and if it
proves inappropriate, future growth of market share may
be impacted
 The channel process includes all activities, beginning with
the manufacturer and ending with the final consumer

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Home-Country Middlemen
Home-country middlemen, or domestic middlemen,
provide marketing services from a domestic base and
find foreign markets for products for local
manufacturers

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Frequently Used Types of Domestic
Intermediaries
 Manufacturers’ Retail Stores
 Global Retailers
 Export Management
Companies
 Trading Companies

 U.S. Export Trading
Companies
 Complementary Marketers
 Manufacturer’s Export
Agent

Home-Country Brokers
Buying Offices
Selling Groups
Webb-Pomerene Export
Associations
 Foreign Sales Corporation
 Export Merchants
 Export Jobbers





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Foreign Country Middlemen
 The variety of agent and merchant middlemen in most countries is
similar to that in the United States
 International marketers seeking greater control over the distribution
process may elect to deal directly with middlemen in the foreign
market
 They gain the advantage of shorter channels and deal with middlemen
in constant contact with the market

 Using foreign-country middlemen moves the manufacturer closer to
the market and involves the company more closely with problems of
language, physical distribution, communications, and financing
 Foreign middlemen may be agents or merchants, they may be
associated with the parent company to varying degrees, or they may
be hired temporarily for special purposes
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Foreign-Country Middlemen
 Some of the more important foreign-country
middlemen, who find markets for foreign
manufacturers include:
•
•
•
•
•
•

Manufacturer’s Representatives
Distributors
Foreign-Country Brokers
Managing Agents and Compradors
Dealers
Import Jobbers, Wholesalers, and Retailers

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Government-Affiliated
Middlemen
 Marketers must deal with governments in every
country of the world
 Products, services, and commodities for the
government’s own use are always procured through
government purchasing offices at federal, regional,
and local levels
 In many countries such as the Netherlands, the
Government purchases from a lot of suppliers, and a
large percentage of the suppliers may be located in
other countries
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Factors Affecting Channel
Choice
 The selection process involves the following:
1.
2.
3.
4.

Identify specific target markets within and across
countries.
Specify marketing goals in terms of volume, market
share, and profit margin requirements.
Specify financial and personnel commitments to the
development of international distribution.
Identify control, length of channels, terms of sale, and

channel ownership

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Six C’s of Channel Strategy
1.
2.
3.
4.
5.
6.

Cost
Capital Requirements
Control
Coverage
Character
Continuity

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Channel Management
 Many companies have been stopped in their efforts
to develop international markets by their inability to
construct a satisfactory system of channels.
 Construction of the middleman network includes
seeking out potential middlemen, selecting those
who fit the company’s requirements, and

establishing working relationships with them
 The closer the company wants to get to the
consumer in its channel contact, the larger the sales
force required
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